Four top executives of Thornburg Mortgage improperly paid themselves handsome bonuses just before the mortgage lender filed for bankruptcy last year, and stole money and ideas from Thornburg to secretly launch a new firm, the bankruptcy trustee in charge of liquidating the lender alleged in a lawsuit.

In an 82-page complaint filed on Tuesday in U.S. bankruptcy court in Baltimore, the trustee, Joel Sher, said the four executives and their outside lawyer and law firm conspired to launch a new company, called SAF Financial, using a strategy created by Thornburg to try to save itself.

The trustee alleged that former Chief Executive Larry Goldstone, former Chief Financial Officer Clarence Simmons, and former Vice Presidents Deborah Burns and Amy Pell began planning for the new company in the months and days ahead of Thornburg's bankruptcy. The plan was to purchase a small thrift that would give the company access to deposits and Federal Home Loan Bank funds for issuing mortgages, according to the lawsuit.

The trustee is seeking to recover at least $12 million in misappropriated funds and millions from other claims, including thousands of dollars worth of bonuses he contends the executives secretly paid themselves ahead of the bankruptcy.

Faced with an impending bankruptcy, two of the Debtor's (Thornberg's) senior officers, together with one of the Debtor's most trusted attorneys, embarked upon a multi-faceted conspiracy in which they converted substantial amounts of the Debtor's cash, proprietary and confidential information and used the Debtor's personnel and fixed assets to start up a secret new business venture, the trustee said in the complaint.

The suit alleges the Thornburg executives caused the company to switch bankruptcy lawyers so they could execute their secret plan, improperly caused thousands of dollars to be paid to vendors and employees from Thornburg's funds for the benefit of their new venture, and hid, lied and covered up all that they were doing from the company's creditors and directors.

Over a thirty-day period, in an unchecked frenzy of self-dealing and wanton and reckless breach of fiduciary duty and loyalty, Messrs. Goldstone and Simmons caused TMST (Thornburg) to make payments to themselves and their cohorts in the aggregate amount of $842,000.00, the trustee wrote in the lawsuit.

The complaint is obviously a one-sided story that's been told by the trustee, and when the other side is told it will be obvious that the claims are without merit, said Mark Salzberg, an attorney at Patton Boggs in Washington representing Goldstone, Simmons, and SAF Financial. Burns declined to comment on the lawsuit and Pell did not immediately return a message left at her home.

The trustee's lawsuit also named attorney Karen Dempsey of the San Francisco law firm of Orrick, Herrington & Sutcliffe and the firm itself as part of the alleged conspiracy.

Pamela Phillips, a San Francisco attorney at Howard Rice Nemerovski Canady Falk & Rabkin representing Orrick and Dempsey, said the trustee's allegations were outrageous and that the trustee had not reached out to the law firm prior to filing the lawsuit.

We believe that Ms. Dempsey provided valuable advice to the debtors both before and after they went into bankruptcy and that her advice was extremely helpful to the company, Phillips said. We think the bankruptcy trustee is looking for a deep pocket rather than addressing the actual facts at hand.

Sher was appointed as the trustee in charge of liquidating Thornburg in October, after a whistle-blower letter to the company's creditors brought the accusations against the executives to light and Goldstone and Simmons resigned.

Thornburg, once one of the leading providers of 'jumbo' residential mortgages, filed for bankruptcy protection last May with $24.4 billion in assets, making it one of the largest bankruptcies of 2009.

The company, which changed its name to TMST Inc, represents one of the largest failures of the subprime mortgage crisis and is now mostly liquidating. The trustee recently agreed to sell its prized $11 billion mortgage servicing portfolio, and its former ADFITECH mortgage industry services unit is reorganizing on its own.

(Reporting by Emily Chasan; editing by John Wallace)